United States Will Hit Debt Limit Sooner Than Expected Because of Tax Cuts
Posted January 31, 2018 8:02 p.m. EST
The Congressional Budget Office said on Wednesday that the United States is expected to bump up against its borrowing limit a month earlier than previously expected, a function of last year’s $1.5 trillion tax cut, which is resulting in less revenue for the Treasury Department.
According to the budget office, the borrowing limit will most likely need to be raised in early March after the “extraordinary measures” to extend borrowing employed the Treasury secretary, Steven Mnuchin, are exhausted. The budget office previously projected that the debt limit would need to be raised beyond its current level of $20.5 trillion in late March or early April.
The reason for the change stems from the tax cuts, which went into effect in January and are expected to translate into less revenue for the federal government.
The Internal Revenue Service released new withholding tables this month to reflect the new, lower tax rates, which will result in companies withholding less money from worker paychecks. Beginning in February, the government is expected to see $10 billion to $15 billion less tax revenue each month.
The Trump administration has said that faster economic growth spurred by the tax cuts will eventually allow the cuts to pay for themselves. Mnuchin has acknowledged that the additional revenues will be backloaded over the 10-year budget window and that he does not expect to see an increase in government revenues this year.
On Tuesday, Mnuchin called on Congress to lift the debt limit by the end of February in order for the United States to borrow more money to pay its bills. He said that the trajectory of the national debt was something that concerns President Donald Trump but dismissed suggestions by Democrats that the tax cut was only worsening the fiscal situation, saying that if economic growth can be sustained at an annual rate of 3 percent, the tax cuts will pay for themselves. (Macroeconomic Advisers, an economic forecasting firm, expects growth in the first three months of 2018 to fall to 2.3 percent.)
Congress suspended the debt limit last September as part of a deal brokered by Trump that was intended to help clear a path for the tax legislation to pass.
Agreement this time around will probably be more complicated, as lawmakers are also battling over a broader deal about the budget and immigration legislation. Government funding is currently set to expire on Feb. 8.
Some lawmakers have proposed abolishing the debt ceiling, arguing that it has failed as a tool to control government spending because it is routinely raised. Mnuchin, speaking at a Senate Banking Committee hearing on Tuesday, said that Trump would be open to changes to the debt ceiling.
Democrats seized on the Congressional Budget Office debt limit report on Wednesday as new evidence that the Republican tax bill was fiscally reckless.
“With full control of the House, Senate and White House, Republicans have revealed their contempt for fiscal responsibility and their utter incompetence in governing,” said Rep. Nancy Pelosi of California, the House Democratic leader.
The budget office said that the government ran a deficit of $23 billion last month. Annual deficits are creeping up to $1 trillion and the national debt has topped $20 trillion.
On Monday, the Treasury said that the U.S. will need to borrow $441 billion in privately held debt this quarter, the largest sum since 2010, when the economy was emerging from the worst downturn since the Great Depression.